Thursday, May 28, 2015

I wrote a while ago about currency crises (see here). There I suggested that classical-Keynesian or post-Keynesian views on currency crises invert the causality between fiscal and balance of payments problems in a currency crisis. Currency crises are not caused by excessive fiscal spending financed by monetary emissions, which would lead to inflation, and eventually after a run on the currency and depletion of reserves to a devaluation, but on current account problems.

There two key problems with the conventional view. On the one hand, the very monetarist notion that increases in money supply have direct impact on prices, and no effect on quantities. That would be an extreme natural rate hypothesis. But also that these models presume that fiscal deficits and debt denominated in domestic currency are the problem in currency crises, when the relevant debt is the foreign one, related to the current account deficit, and denominated in foreign currency. In other words, whereas default in the former is not possible, in the latter it clearly is. The mismatch between government receipts in domestic currency and foreign debt obligations in foreign currency is the key problem in currency crises.

Fiscal deficits might play a role in a currency crisis, but it is ultimately an indirect one. If the fiscal deficit, by leading to an increase in the level of activity (not prices) leads to a current account deficit, then it does exacerbate the external constraint of the economy, and might contribute to the eventual depreciation. Note that this suggests that the variations of the level of income are more relevant for the adjustment of the balance of payments, than changes in the exchange rate, something noted for the case of peripheral economies, in particular Argentina during the Gold Standard, by A. G. Ford (for a discussion of that go here).

In a classical-Keynesian view the fiscal crisis might be a result of the currency crisis, and not vice versa (as I discussed for Brazil here). If the crisis leads to a recession, then fiscal revenues collapse, and spending increases, particularly unemployment insurance expenditures, welfare spending, and transfers, exacerbating the fiscal problems. Further, the central bank might hike the domestic interest rate, to preclude capital flight and further devaluation and that would have an additional effect on interest payments on domestic debt, also worsening the fiscal stance.

This currency crisis story might have some relation to the current debate between Marc Lavoie and Sergio Cesaratto on whether the European crisis should be seen as a a monetary sovereignty problem (Marc) or balance of payments crisis (Sergio). Both would agree that the crisis is not the result of fiscal problems, as described above. Even in Greece, that had higher fiscal deficits than others, the relevance of those deficits, and the enforcing of brutal austerity afterwards, has been associated to the current account. Note that in common currency areas, like the United States, federal fiscal transfers (and not just inter-state transfers) would allow for imbalances to continue without leading to contraction of output to reduce the regional balance of payments constraints, as noted by Nate Cline and David Fields here.

Alternatively, in the absence of fiscal transfers from a federal European government, if the European Central Bank (ECB) had the ability to buy euro denominated bonds of peripheral countries and keep their borrowing costs low, fiscal policy could be used by member countries, without risk of default. That's what Marc Lavoie has argued, that at the heart of the problem there is a monetary sovereignty problem. Basically the ECB could transform what is effectively a foreign currency problem, since peripheral countries have a constraint in euros, into an essentially domestic problem with no risk of default. On the other hand, it is also true that the manifestation of the euro crisis is in the form of a regular balance of payments problem, as noted by Sergio Cesaratto. In a sense, both are correct. The imbalances in the current account, which Sergio puts at the center, become relevant because in the absence of fiscal transfers, and of a monetary authority providing a zero risk asset for governments to borrow in times of crisis, as emphasized by Marc, the adjustment is done by variations of the level of income.

The difference might lie not so much in the diagnostic, which is basically the same (they also agree on Keynesian fashion that the current account adjustment is done by variations in quantities not prices), but on the policy alternatives. Sergio's emphasis seems to suggest that exit is the best alternative. Marc's views would indicate that reforming the institutions would be better (mind you, they might think differently, I'm suggesting what the different emphasis might imply). It is unclear to me that depreciation and exit from the euro would solve the problems of peripheral countries (on the role of depreciation on solving the external problem in Greece, that is, Greexit, go here). On the other hand, the reform of the European institutional framework has proceeded at pace that seems too slow for the magnitude of the problems faced in the peripheral countries. There is no good alternative.

PS: The Troika's solution is austerity, since the the crisis is seen as a fiscal problem, as in conventional currency crises models. And the ECB should in that framework remain concerned only with inflation.

Wednesday, May 27, 2015

The Progressive Economics Forum holds its annual meetings at the
Canadian Economics Association (CEA) conference. This year we are at Ryerson University,
Toronto, Thursday, May 28 to Sunday, May 31, 2015.

Introducing Marc Lavoie
May 29, 2015

By Louis-Philippe Rochon

I am very honoured to be introducing this year’s guest speaker.

When I was asked to introduce him, I found myself in a bit of a conundrum.

After all, how can I possibly do this in just 5 minutes? I mean it is impossible to do justice to his work over the last 35 years in such a short time. His CV by the way is 40 pages long. So one would need quite possibly a good hour to cover all the important features of our guest’s distinguished career.

Marc Lavoie obtained his doctorate from Sorbonne Paris 1 in 1979 and arrived at the University of Ottawa the same year. It was only a few years later, in 1983, I believe, that I had him as a professor. I took Introduction to Post-Keynesian Economics (with a hyphen!) largely because nothing else fit my schedule. I must admit I was a bit reluctant to take the course as other students were telling me to stay away. But, I did anyways and the rest, as the old saying goes, is history.

Marc has a long – very long – list of publications. To wit, he has published, at last count, over 120 peer-reviewed journal articles and 71 book articles; he has written 10 books, and edited another six.

Among the books he has written, we have an excellent first-year textbook, co-written with his colleague of 35 years, Mario Seccareccia, who was also my professor.

There is also a book that has contributed to the emergence of an entire new approach, the so-called stock-flow consistent approach, which has seduced a great many young, and not so young, scholars. Today, there are a great many articles and conferences dedicated to that approach.

The book, Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth, was co-written with Wynne Godley, and, like many of his other books, has had a tremendous impact on post-Keynesian economics. It is safe to say that Marc has single-handedly given great empirical “legitimacy” to heterodox economics.

Another book is his Introduction to Post-Keynesian Economics. First written in French for the famous Repères series, I had the privilege of translating it in English (something by the way I will never do again, and I think Marc will agree on that!), and it has also been translated into Spanish, Japanese, Mandarin, with Italian and Korean translations in the works. I hear a Klingon version is next!

His most recent book, a greatly expanded version of his quintessential 1992 tome, is by any definition an essential book for anyone wanting to learn about post-Keynesian and heterodox economics. Indeed, Post-Keynesian Economics: New Foundations, in my opinion, towers high above all other books on the topic, and offers readers great insights into the essential features, both micro and macro, of post-Keynesian economics. In my opinion, this book is already a classic. I am certain, in several decades from now, it will be regarded as one of the greatest written on Post-Keynesian economics.

Among his edited volumes, I want to point to three in particular. His most recent with Fred Lee (2013) In Defense of Post-Keynesian Economics and Heterodox Economics: Response to their Critics, is an excellent collection of articles addressing directly the many critics of heterodox economics.

Another book, entitled Money and Macroeconomic Issues: Alfred Eichner and Post-Keynesian Economics (2010), reflects on the great work of Alfred Eichner, an economist who has greatly influenced Marc’s thinking. It is a book, which was co-edited by Mario Seccareccia and myself.

Finally, another great book, co-edited with Mario Seccareccia, on Central Banking in the Modern World: Alternative Perspectives (2004) has many excellent articles on credit, money and central banking.

Now, while many here know his writings in economic theory, monetary theory and policy, fiscal policy, endogenous money, growth theory, price theory, Marc also has a whole other life in sports economics. This is perhaps a reflection of his avid interest in sports, having been named not once, but twice, Carleton University’s Male Athlete of the Year (1973-74, 1974-75). He is greatly passionate about fencing, for which he not only won the Canadian national senior championship in sabre seven times, but also represented Canada in the 1975, 1979 and 1983 Pan-American Games (where he finished 4th in the individual event in sabre in 1979). He also participated in the Commonwealth championships in 1974 (4th), 1978 (2nd) and 1982, and competed at the 1976 and the 1984 Summer Olympics.

He is currently Managing co-editor of the European Journal of Economics and Economic Theory: Intervention, and is on the editorial board or Executive Board of 13 journals, including my own journal, the Review of Keynesian Economics. He has lectured around the world, in far too many places to list.

There is no doubt that Marc’s contribution to economics and to post-Keynesian economics in particular has influenced a generation of scholars. Many regard him, and rightly so, as one the greatest scholars in the heterodox tradition. I concur.

As an example, I am currently editing a set of 3 anthologies in post-Keynesian economics for Edward Elgar. So last month, out of curiosity, I posted a few messages on FB, asking the over 200 post-Keynesian and heterodox economists I know there from around the world, which was their most influential article on monetary theory. Of those who replied to me by email, close to 80% stated that’s Marc’s 1996 article in the Scottish Journal of Political Economy was probably the most important post-Keynesian article on endogenous money, with another 15% mentioned his 1996 article in Money in Motion.

In closing, I need to mention one last important contribution.

Above, I often interchanged the word post-Keynesian for heterodox. This was deliberate. It reflects Marc’s deep passion for a unified heterodox approach. Where many of our colleagues, including myself, see differences and quarrels, Marc sees similarities and bridges among the various heterodox traditions; where some argued for the exclusion of some approach from the post-Keynesian family, Marc insisted on casting a large post-classical tent, and pointed to what united us rather than divided us. This has been a consistent theme throughout his career and his writings.

I am running out of time. Well, like I said, it is difficult to do justice to his long career in such a short time, and this was the root of the conundrum I faced. But well, upon deeper reflection, I guess there really is no conundrum.

I don’t need longer than 5 minutes, I am happy with less. Since in the end, we all agree, our distinguished guest needs no introduction.

Saturday, May 23, 2015

The Senate approved fast track for the Trans-Pacific Partnership (TPP), giving Obama authority to negotiate. It has to be approved by Congress still. On this topic, it is interesting that it is the first time Krugman came out (or here), as a closet 'protectionist', and was against a Free Trade Agreement (FTA). Note that the reason for his Sveriges Riksbank Prize (aka Nobel) was: "his analysis of trade patterns and location of economic activity."

His contribution to the analysis of trade patterns was essentially to introduce imperfect competition in the mainstream trade model. And actually what introducing imperfect competition in the mainstream Heckscher–Ohlin-Samuelson (HOS) model (the limitations of that model were discussed here before) did was to suggest that under certain circumstances trade management might be a good idea. He edited later a book, Strategic Trade Policy and the New International Economics, in which some more vocal defenders of trade intervention were present (I'm thinking of Laura d'Andrea Tyson, and John Zysman, at least at that time, in the early 1990s).

But he remained committed to free trade (he wanted the 'Nobel' badly, is my guess). The logic, presented in his paper "Is Free Trade Passé?" (subscription required) was that free trade was a simple rule, while trade management was too complicated, so even though policy might be required, Occam's Razor suggested that free trade was a better choice. So Free Trade was not passé after all. Note that this is a bogus argument, since trade, even with FTAs is always managed to some degree. Sanitary rules, defense preoccupations, and so on, imply that barriers to trade are usually imposed. The problem is not the complication of managing trade, is who benefits from the rules imposed (cui bono). FTAs favor corporations, mostly in advanced economies.

Now Krugman finally gets that. He suggests that:

"the Pacific trade deal isn’t really about trade. Some already low tariffs would come down, but the main thrust of the proposed deal involves strengthening intellectual property rights — things like drug patents and movie copyrights — and changing the way companies and countries settle disputes. And it’s by no means clear that either of those changes is good for America."

That is not new for those that understood the limitations of the theory behind free trade. A few years back I said on the FTA with Colombia:

"Rather than a 'free trade' agreement, the plan that will be sent to Congress should be understood as a corporate and financial liberalization agreement. Workers, in Colombia and the United States, have little to gain from it." (See also my response to Mankiw on TPP more recently here)

FTAs allow greater mobility to capital, provide all sorts of protection to corporations in terms of ownership and access to courts, at the same time that it limits the abilities of national governments to intervene. However, one of the central things that government should be able to affect is exactly was is locally produced, and what types of jobs are generated as a result of these interventions. Industrial policy is intrinsically tied to commercial policy.

On this Krugman remains as conventional as he can be. He avoids telling you that trade has negative distributive effects, and that it might negatively affect industrial employment, and potential growth. For him, the only reason that TPP might be bad is that it may reduce access to cheap medicines in developing countries and make financial reform more difficult in the US (both true, by the way). Why you ask free trade would not be bad otherwise? In his words: "because, whatever you may say about the benefits of free trade, most of those benefits have already been realized." So there you have, Free Trade already worked, and one would assume it has not been part of the forces that weakened labor bargaining power in the US, according to his views. Or if it was, it was fine, since overall free trade was beneficial. To whom is not a question.

And ask the people in Mexico, left with a pattern of specialization that only allows for the exports of people, directly through immigration or indirectly through maquilas, how much NAFTA has benefited them. The notion that free trade, free markets in general, produce somehow optimal outcomes is a crucial fetish of mainstream economics. And Krugman is very concerned with being taking seriously, and not violating the accepted totem of the profession. As he says it is possible for: "reasonable, well-intentioned people [to] have serious questions about what's going on [the TPP negotiations]." Yes, he still believes in free trade (is not passé and the benefits have been realized), he is 'reasonable, and well-intentioned,' and has 'serious questions.' Not like those dirty hippies that think free trade has no rigorous intellectual foundation.

Thursday, May 21, 2015

Mauro Boianovsky and Roger Backhouse have written a brief post on the topic, based on a longer paper. As I understand the modern version, due essentially to Larry Summers, it basically suggests that there are insufficient investment opportunities, or a savings glut to use Bernanke's hypothesis, discussed here before. I explained why it doesn't seem particularly compelling story in that previous post. If public spending picked up in the US, so would private investment, and the savings glut would vanish. Yes global imbalances would increase. That would be good. Global imbalances would solve the 'secular stagnation' problem.

Note that the Summers' view is different than the Robert Gordon's view, but not incompatible with it, according to which the innovations of the third industrial revolution are less transformative than those of previous waves of technological change. As noted before also, since I believe the evidence for demand driven technological innovation is strong (something called Kaldor-Verdoorn's Law) I don't think there is much to this argument either. The Gordon hypothesis assumes that innovations are supply side determined, like most neoclassical economists, including Schumpeter.

Boianovsky and Backhouse point out something that I didn't know, since I didn't read Hansen's original paper on this, I might add, that the Turner's hypothesis about the closing of the Western frontier played a role in Hansen's stagnationist hypothesis. Not sure what's the mechanism, so I'll check and report back on that. Also they seem to suggest that Domar's debt sustainability condition depends on the Harrod-Domar model. That result, as far as I understand it, is completely independent of the growth model.

I should also note that the only forgotten author in this revival of the stagnationist thesis, is the most interesting of them all, namely: Josef Steindl, author of the 1952 classic Maturity and Stagnation in American Capitalism. Stagnation resulted from the oligopolistic structure of mature capitalism, in his view. Steindl was famously wrong, in the sense that the 1950s and 1960s were not a period of stagnation.* But at least his explanation pointed out in the direction of social conflicts imposed by the productive structure of advanced economies. As I said on my previous post on the topic, there is no secular stagnation problem, associated to lack of investment opportunities, in my view. There is a political problem that precludes more fiscal expansion, or in Steindl's terms, it's stagnation policy.

Wednesday, May 20, 2015

Hillary Clinton does not want to talk about past economic controversies. And it is easy to understand why. There is much that is troubling. But let’s not go along with her wishes. You can learn a lot by studying recent history and even more by watching how politicians react to that history.

The big “let’s move on” story of the Clinton campaign is the refusal to answer journalists. According to the Washington Post in the first 29 days after she announced her campaign she took just eight questions. The campaign’s response to all this? Blah. Reporters whining as usual.

Now, I’m not going to be impolite and focus on questions about the Iraq War which have been getting Jeb Bush in deep trouble with some liberals. Instead, I’m going to focus on economic policy which is my area of expertise. It also seems to be the focus of Mrs. Clinton’s campaign.

Tuesday, May 19, 2015

Catching up with work after grading. Posting will continue slow for a few weeks. Just a brief note on the brouhaha that the Romer (Paul) paper has led to. I mostly read it in Lars blog. Lars quotes Romer as saying:

"About math: I have an undergraduate degree in physics.* I’ve seen clear evidence that math can facilitate scientific progress toward the truth. If you think that math is worthless or dangerous, I’m sure that there are people who will be happy to discuss this with you. I’m not interested. I’m busy.

About truth and science: My fundamental premise is that there is an objective notion of truth and that science can help us make progress toward truth. If you do not accept this premise, I’m sure that there are people who would be happy to debate it with you. I’m not interested. I’m busy."

I should say that I only looked cursorily at the paper, which seems poor at best. The notion that: "Joan Robinson (1956) was engaged in academic politics when she waged her campaign against capital and the aggregate production function," misses the quite important logical point of the capital debates, which were acknowledged by none other than Paul Samuelson in his 1966 "Summing Up" (subscription required).

It seems clear that the very concept of mathiness is murky at best.** Some mathematical concepts are fine, some aren't. The criteria seems to be Romer's personal preferences. Mind you, the quote above is one of the few things in that post that is clear and on the mark. Math is just an instrument. If Romer spent the time to read Sraffa's short monograph, he would have to conclude (mathematical logic requires it) that mainstream notions about relative prices associated to relative scarcity are not logically tenable. Progress would imply discarding illogical models. He is busy, though.

I should add that, in general, I'm in agreement with Lars critique of Romer. However, the problem to me seems to be less concerned with the use of mathematical models because "the real world is fuzzy, vague and indeterminate," which it clearly is, but with the logical inconsistencies of the neoclassical model per se. It is the kind of models that Romer uses (and the authors he criticizes too) that are problematic, not the fact that he formalizes his ideas in mathematical models. That's why it's a bit funny that he thinks that some RBC or New Classical authors are the problem, because presumably they fool you with math or, as one of the definitions of mathiness suggests, the words that these authors use to describe their mathematical results do not accurately convey what the math shows.

Sure enough, there are important elements in economic theory that cannot be easily formalized, and that does not mean that objective understanding is impossible. I haven't seen the formalization of the concept of mode of production, but that does not mean that the definition of capitalism is devoid of meaning. My two cents.

* This has been amended in the last version. Now reads: "I studied physics as an undergraduate." As it turns, some economists DO have physics envy. But you know what this means. He knows math people. He is an authority. Arguments of authority are so sciency, aren't they?

** At least two definitions are possible it seems. Logically incorrect mathematical arguments that are defended anyway (Romer would incur on this version of mathiness), or a discrepancy between the mathematical model and the underlying economic theory (the one Romer suggests some in the mainstream incur). They are not necessarily equivalent.

Sunday, May 17, 2015

How Should Economics be Taught? -- Vicenç Navarro on the need for more interdisciplinary and about Podemos in Spain (h/t Mike Norman). Don't get me wrong, interdisciplinary is certainly good, but the problems with economics are within the discipline. Doesn't help much to have historical and political perspective if the economic model suggests markets are self-regulated with a tendency to the natural rate of unemployment.

Blaming Keynes -- Simon Wren-Lewis response to Niall Freguson's FT piece. How well has the UK done under the Tories? His reply: "growth in GDP per head under Labour averaged 1.5% even though it included this recession, but average growth from 2010 to 2014 was only 1% when we should have been seeing a rapid recovery."

Friday, May 15, 2015

The journal, Cuestiones Económicas, is being re-launched. I had a paper published back in 2001, pictured above. And have been invited to be a member of the board now. Call for papers (in Spanish) here. Interestingly, the paper is not the one on Ecuador and dollarization (for that one go here).

Wednesday, May 13, 2015

From yesterday's panel on "Reforming the Future: Lessons from Sovereign Debt Restructuring" held at the Atlantic Council. Close to the 11 minute mark Stiglitz says that Griesa's decision on Argentina and the Vulture Funds was "very peculiar" and that it made restructuring almost impossible.

Tuesday, May 12, 2015

April’s Employment Report showed a gain of 223,000 jobs and a further one-tenth percent decline in the unemployment rate to 5.4 percent. The good news is the report shows the economy continues to nudge forward and create jobs for newcomers into the labor force. The bad news is the economy is not growing fast enough to raise wages.

Average hourly earnings for production & non-supervisory workers, who are eighty percent of the workforce, are up just 1.85 percent over the past year. In April, the rate of wage increase actually declined.

The broad (U-6) measure of unemployment stands at 10.8 percent, which is far above the level of past economic cycles. Furthermore, unemployment is widespread across all business sectors. The labor force participation rate also remains at a historically low level, indicating that many workers stand ready to re-enter the work force when jobs become available. Together, these conditions show labor supply is plentiful and there is no threat of inflationary shortages.

Monday, May 11, 2015

Here, as per the comments, an update picture of austerity in the UK in comparison to Greece and the US. I added Germany too this time. Data from the International Monetary Fund (IMF, WEO Database). Figures for 2014 and 2015 are estimates.

This graph shows total government expenditures rather than just consumption. Note that the UK has pursued austerity, but it has not been particularly more austere than the US. Germany has pursued moderate, very moderate, fiscal expansion. The decline in government spending in Greece has no parallel, as should be expected, since the country was forced to pursue austerity policies.

Again, this shows that David Brooks notion "that there were two countries that did what we call austerity," meaning Germany and the UK, and that is connected to the fact that "the two strongest political leaders right now in Europe are Angela Merkel and David Cameron," so that this is a vindication of austerity policies is, as I had noted before, preposterous.

Friday, May 8, 2015

So just heard David Brooks say at the PBS News Hour -- it says something about the state of media in this country that PBS (not surprised about the NYTimes) would have such a blatant ideologue as a commentator -- suggest that the election in the UK, which is doing better than other countries in Europe, proves that austerity works.

Obviously the UK economy sucks, and Labor promised austerity too, but the point is that Brooks suggested that the UK (and Germany) had austerity while others didn't. Not that he checks data ever. So I did. Below government final consumption in constant prices in Greece (blue) and the UK (red).

As you can see it's true that the UK has done better, simple because of less austerity, in fact, looking at just government consumption the UK doesn't seem to be pursuing austerity at all. So the fact that the governments in the UK and Germany are for austerity, while the current Greek one, at least nominally, it's not, does not mean that they do pursue austerity more aggressively than the rest of Europe. Unless Brooks thinks that what matters is what you say, not what you do.

PS: Below the same comparing the US and Greece. The US actually is more austere than the UK, but not nearly as much as Greece.

Grading finals. Very slow posting. BLS published the Employment Situation Summary and labor markets suggest that the slow recovery continues. A bit more than 220k jobs created in April, and the unemployment at 5.4%. Wages still basically stagnant.

Wednesday, May 6, 2015

I wasn't a big fan of the Keynes/Hayek video. Mostly as I noted before more than once (here, for example), because Hayek was not really that relevant in the history of economic ideas. Keynes was debating with Pigou and Robertson, that is, the marginalist tradition in Cambridge going back to Marshall. Hayek was dispatched early on by Sraffa. Oh well, here the response video.

Tuesday, May 5, 2015

The Argentine Central Bank was created 80 years ago. The New York Times had this short piece, in which Raúl Prebisch, who declined to be appointed president of the institution (he was too young, 34 or so), is cited. He was effectively in charge of policy. Some discussion of his policies can be found in this paper with Esteban Pérez here (final version published here).

Monday, May 4, 2015

The famous Italian report, or parts of it, written in the early 1960s, which preceded the English papers published in the Cambridge Journal of Economics (CJE) in the late 1970s (here and here; subscription required), has been translated and published by the Review of Political Economy (ROPE) and is available here.

Some excerpts that are particularly relevant given recent debates on growth within heterodox schools. Garegnani says:

"it follows that the effect of increases in real wages on the absorption of unemployment will depend in large measure on how they affect final demand.

It is necessary then to distinguish between the two components of final demand: consumption and exports."

On the effects of real wage changes on consumption he argues that:

"As regards consumption, increases in real wages lead to a rise in consumption and hence, provided the economy has accumulation capacity that is not fully utilized, to an expansion of the productive system and to an increase in employment. Given the level of productivity in the economy, the increase in real wages will in fact cause a redistribution of income in favour of a class that consumes a major portion of its income, and with that an increase in the first component of final demand...

a steady and continuous rise in real wages along with the consequent steady and continuous increase in consumption can serve to instil in entrepreneurs a confidence in the continuous expansion of the market for their products, inducing them to undertake investments and increases in employment and output that will in turn help to raise final demand."

Then the question is what is the effect of real wage changes on exports:

"But how far can this increase in consumption due to the rise in real wages continue before its effect on final demand is offset by a reduction in the other element of final demand, net exports? ...

The discussion of the effects of a change in real wages on exports is much more complicated than the discussion of how real wages affect consumption. Exports do not in fact depend in a straightforward way on the movement of wages in the same way that consumption does. Variations in net exports depend upon the money prices of goods, and unless additional assumptions are introduced, no necessary connection exists between the movement of real wages and the behaviour of prices. If real wages were to rise via a fall in prices with constant money wages, the situation with regard to exports would be improved. If real wages were to increase via an increase in money wages with prices remaining constant, the exports situation would be neither improved nor harmed. If however the increase in real wages were to lead to increases in the level of prices, exports would be harmed in a regime of fixed exchange rates."

And that is before bringing the question of productivity into the analysis.

From a more historical point of view, the significance of this report is that it was written right after the publication of Sraffa's Production of Commodities by Means of Commodities, and of Garegnani's own doctoral dissertation, published as Il Capitale nelle teorie della distribuzione. This should make clear that part of the Sraffian project was the revival of the classical theory of distribution, concomitantly with the extension of the Keynesian Principle of Effective Demand to the long run.

"The question is whether we are prepared to move out of the nineteenth century laissez-faire state into an era of liberal socialism, by which I mean a system where we can act as an organized community for common purposes and to promote social and economic justice, whilst respecting and protecting the individual - his freedom of choice, his faith, his mind and its expression, his enterprise and his property" (Collected Writings of John Maynard Keynes, volume XXI, p. 500).

Sunday, May 3, 2015

The Unit Root of the Matter: Is it Demand or Supply? -- Roger Farmer on why the normal rate at which the economy fluctuates is driven by demand. In his words: "aggregate demand, driven by animal spirits, is pulling the economy from one inefficient equilibrium to another." I would say autonomous demand. But close enough.

US External Debt: A Curious Case -- Paul Krugman on his version of dark matter. For him the explanation is: "the differential performance of stock markets." My views here. Basically, there is nothing curious about it really.

Saturday, May 2, 2015

One of the main collective contributions of the various heterodox schools of monetary thought, such as circuit theory, Post Keynesian theory, in both its horizontalist and structuralist versions, modern money theory (now known simply by its acronym MMT), and others, has been to stress the importance of the endogeneity of money via bank credit creation. This issue was hardly discussed at all in the economics mainstream after Keynes’s death, not until the very end of twentieth century and the beginning of the twenty-first.

Friday, May 1, 2015

May 1st commemorates, as it is well known, the workers strike at McCormick Harvester factory in Chicago in defense of the eight hour journey (such a radical idea!), which led to police repression and the deaths of four workers. It also commemorates the events of May 4th the so-called Haymarket affair, in which a bomb killed a policeman (and after more police repression other four workers were killed and several wounded) and eight anarchists leaders were framed and sentenced to death. In dark blue are the countries that commemorate labor day on May 1st.